The Overnight Report: Pre SpaceX IPO Selling

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This story features SIGMA HEALTHCARE LIMITED, and other companies.
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The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

Across the board selling hit US indices overnight with the Nasdaq down the most, by -2%, as investors de-risk the AI-tech trade. 

Oil futures continue to rise as the US announced and launched further strikes against Iran.

After a positive day yesterday, ASX200 futures are pointing to a weak start.

Good Morning,

The Australian market rallied 49 points or 0.6% to 8,653, albeit closing off intraday highs. Consumer staples and discretionary sectors led the gains, with tech and miners weighing on the index.

Market commentary elsewhere suggests the local index was boosted by a large Transition Portfolio in the leaders and large caps. Transition portfolios are often common at this time of the year in June due to changes in mandates and managers.

Industry super funds are reportedly replacing active managers with passive or quant funds. The resultant “transition portfolios” are in some instances estimated to be as high as $10bn in value.

The transition causes money to flow out of Small Caps into Large Caps, while equally triggering further selling in Technology stocks.

More selling is expected from Mercer before the end of the month, with UniSuper reportedly selling this week as part of its transition.

The SpaceX IPO is reportedly four times oversubscribed ahead of Friday’s listing.

Today’s Big Picture, J.L.Bernstein

The Afternoon Was the War, Not the Inflation Print

By midday the CPI was old news. The leg lower came when Trump said Iran took too long and he would strike hard today.

Oil closed up, with WTI back near US$90/bbl and Brent above US$93/bbl.

Stocks finished near their lows. The Fed’s next move now hangs on a war, not on the data.

The Rotation Held, and You Could See Where the Money Went 

Chips fell for a fourth day in five, but the cash did not leave the building.

It moved into the boring stuff. Coca-Cola, TJX and even chip-equipment maker Applied Materials all closed at record highs on a red day.

That is a rotation, like I said this morning, not a breakdown.

Amazon Knocked the Freight Stocks Down

Amazon said it will open its trucking arm to any business, not just sellers shipping into its warehouses.

The carriers got hit fast. Old Dominion, Saia and XPO all closed lower on the news.

When Amazon enters your pricing, your margins become the product.

ANZ Bank, Australian Morning Focus extract

US President Trump said the US would strike Iran again.

This escalation comes after a US Apache helicopter was shot down near the Strait of Hormuz earlier in the week, and negotiations between the US and Iran have stalled, with Trump accusing Iran of dragging out talks. 

May headline inflation rose 0.5% m/m (matching the consensus) with core up 0.2% m/m (below the consensus of 0.3% m/m). Within the core print, there was some evidence that goods inflation is moderating.

CPI inflation excluding food, energy, shelter and used vehicles rose 0.12% m/m vs 0.2% in April and is its lowest reading since November. That implies a weak inflation pulse from energy to non-energy sectors and may be indicating that the tariff effect is starting to wane.

We also think it reflects weak demand and low firms’ pricing power. Real average hourly earnings fell -0.7% y/y in May vs -0.3% y/y in April. 

The FOMC will enter next week’s policy meeting armed with up-to-date labour market and inflation data. The labour market has stabilised and although up to 100k jobs in the 172k rise in May nonfarm payrolls may be World Cup related, there is no immediate urgency for the FOMC to adjust policy because of weak hiring.

Attention therefore can focus on inflation and here the story is divergent. Headline CPI inflation rose 0.5% m/m in May to leave it 4.2% higher y/y. That is a concern. However, core inflation is much better behaved. It rose 0.2% m/m in May, as it has in three out of the last four months and was 2.9% higher y/y.

Were it not for the 0.6% m/m rise in shelter inflation in April, which reflected a one-off adjustment owing to data collection issues during the government shutdown in Q4, we estimate core inflation would have also been 0.2% m/m in April.

Our assessment is that annualised core CPI inflation is running around 2.4%, much closer to target than the 2.9% y/y print.

NAB Markets Today extract

It has been a weak session for equity markets, weighed down by geo-political tensions and continued selling pressure in technology companies.

The Philadelphia Semiconductor index, a gauge for chipmakers, has fallen -3% overnight.

Likely weighing on the market is the keenly awaited SpaceX IPO which is reported to have attracted demand for more than four times the available shares (555.6 million shares being offered at a fixed price of US$135).

FOMC Preview – Unlikely to follow through on hawkish chatter, Oxford Economics extract

We expect the Federal Reserve to leave rates on hold at its mid-June meeting, drop the dovish bias from its policy statement, and not show a rate cut this year in the accompanying dot plot.

Hawkish chatter around the Federal Open Market Committee has become much louder, but the bar for a rate hike is high, and we still expect an improving inflation outlook to justify cuts by year-end.

The Fed won’t overreact to one strong jobs report, but broader labor market conditions have improved in recent months, and near-term inflation risks are skewed to the upside, keeping the hawks ascendant.

However, newly installed Chair Kevin Warsh will push the committee to balance that against the stability of services inflation and the disinflationary effects of strengthening productivity growth.

It’ll take time for Warsh to make his mark on the institution, but he could announce next week that he’s dropping some of the post-meeting press conferences as part of a less-is-more communication strategy.

Over the coming months, we expect a push to reduce reliance on forward guidance and place more emphasis on a wider range of inflation measures.

MFS Investment Management, Benoit Anne extract 

Fed speakers signal a higher-for-longer bias.

Last week’s Fed commentary reinforced a clear theme: inflation remains uncomfortably high, and policymakers are not yet confident it is on a durable path lower.

Across speakers, the tone skewed hawkish, with multiple officials emphasizing that upside inflation risks –from tariffs, energy prices, and geopolitical tensions– remain front and center.

Importantly, several policymakers reopened the door to further tightening, explicitly signaling a willingness to hike if disinflation stalls, while others stressed that inflation remains “too hot” and not convincingly transitory.

More measured voices emphasized optionality, underscoring that cuts are not imminent and hikes cannot be ruled out. The Fed also appears increasingly wary of relying on structural “offsets.”

Hopes that AI-driven productivity could ease inflation were broadly dismissed as premature. In fact, Richmond Fed President Tom Barkin noted that AI-related investment may be adding to near-term inflation and pushing the neutral rate higher, suggesting policy may need to stay restrictive for longer than previously assumed.

At the same time, the labor market is seen as balanced but fragile, with Fed Governor Lisa Cook highlighting rising downside risks.

That complicates the policy outlook: persistent inflation alongside softer employment could sharpen the trade-off.

For investors, the key takeaway is that the Fed’s reaction function has shifted back toward inflation control, with asymmetric risks skewed toward tighter policy.

Markets are adjusting accordingly — rate cuts are no longer priced for 2026, and the possibility of a hike cycle extending into 2027 is now entering the conversation. Overall, this makes the case for favoring long duration exposure more difficult.

AI Capex: a durable opportunity that will require more selectivity. 

AI capex still looks more durable than many expected, and the market may still be underestimating the earnings power that could emerge as today’s investment translates into broader monetization. What began as a concentrated build-out in compute is now broadening across the ecosystem, suggesting the cycle is evolving rather than ending.

The next phase may still require substantial capacity expansion, but the market is likely to focus less on the scale of spending and more on who can convert that spending into returns. Early investment was about securing capability and scale.

From here, the focus is likely to shift toward monetization, utilization and the conversion of elevated capex into durable earnings and cash flow.

The key risk is less that spending stops than that returns take longer to emerge in relation to market expectations. The first phase of the cycle largely rewarded exposure to the most direct beneficiaries of capex growth.

The next phase may reward a different mix of attributes: resilience, pricing power, ecosystem strength and capital discipline. As the cycle broadens, we would expect greater dispersion between companies that can translate elevated investment into durable cash flows and those still relying mainly on continued spending momentum.

We continue to believe AI capex will remain a durable theme, but the market is moving into a more selective phase.

While the opportunity remains significant, capturing it may depend less on broad exposure and more on identifying businesses with the balance sheets, competitive advantages and return discipline to convert investment into long-term value (Contribution from Ross Cartwright, Lead Strategist – Strategy and Insights Group).

Corporate news in Australia:

• Super Retail Group ((SUL)) has announced more than a 900 store target by 2031 from 790 currently
• Sigma Healthcare ((SIG)) is in early-stage acquisition talks to buy Boots 
• Steadfast Group ((SDF)) received a takeover approach from Amwins Group
• Northern Star ((NST)) rejected pressure to pursue a sale, but is keeping strategic options open amid Elliott Management’s involvement
• Black Kite acquired 13Sick in a $100m transaction, marking its first private equity deal
• Persol is exploring a sale of Programmed and has appointed Lazard to run an auction process
• The sale process for Device Technologies has restarted, attracting global private equity interest at a valuation above $1bn
• SpaceX’s IPO is reportedly more than four times oversubscribed
• Charter Hall Long WALE REIT ((CLW)) refinanced $2bn of debt and reaffirmed FY26 guidance

On the calendar today:

-EZ ECB Rate

-US Jobless Claims

-US May PPI

-CHAMPION IRON LIMITED ((CIA)) ex-div 2.02c

-LIGHT & WONDER INC ((LNW)) AGM

-SUPER RETAIL GROUP LIMITED ((SUL)) investor briefing

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

The Australian share market over the past thirty days…

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